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Euro Weakens on Central Bank Officials' Comments

Steps to Fend Off Inflation in Euro Zone Gain Support

By

James Ramage

Updated March 26, 2014 4:17 p.m. ET

The euro continued to weaken against major currencies Wednesday one day after officials from the European Central Bank verbalized support for taking bolder steps to fend off deflation in the euro zone.

The yen gained 0.5% in value against the common currency, to 140.72, while the dollar strengthened 0.2% to $1.3795. The euro weakened 0.6% against the British pound, to 1.2025.

Inflation in the euro zone, measuring 0.7% higher on the year in February, sits well below the ECB's goal of 2%. Pressure is mounting for the central bank to either lower key interest rates, even to negative levels in some cases, or to introduce a large asset-purchasing program to battle falling prices at its monthly meeting on April 3.

And any depreciation in the euro, which could be weighing on exports and growth, would be acceptable, ECB officials have said.

"Europe coming out more vocally against euro appreciation has knocked the euro off its most recent highs," said Joe Manimbo, senior market analyst at Western Union.

Words aside, it isn't just rhetoric, Mr. Manimbo said. Noticeable price increases are required in the March inflation data for the euro zone.

"If we don't see some stabilizing in prices in the euro zone, that would ramp up already elevated pressure on the ECB to take action, Mr. Manimbo said.

On Tuesday, ECB governing council members
Jens Weidmann,
Josef Makuch and
Erkki Liikanen
joined ECB President
Mario Draghi
and the European Commission's Antonio Tajani in signaling support for strong measures to prevent deflation.

The dollar weakened 0.2% against the yen Wednesday, to 102.03, and fell 0.4% against the pound, to $1.6590.

The dollar also continued its slide against the Australian dollar, which dropped to its lowest level since Nov. 22, at $. 9247.